Opinion
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
APPEAL from the Superior Court of San Bernardino County. Kurt J. Lewin, Judge. (Retired judge of the L.A. Super. Ct. assigned by the Chief Justice pursuant to art. VI, § 6 of the Cal. Const.). Ct. No. VCVVS042846.
Reid & Hellyer, David T. Bristow, Michael G. Kerbs and Christopher L. Peterson for Plaintiffs and Appellants.
Snell & Wilmer, Richard A. Derevan, Randolph T. Moore and Todd E. Lundell for Defendants and Respondents.
OPINION
McKINSTER, Acting P.J.
HMY New Yacht Sales, Inc. and HMY of the Carolinas, Inc. (HMY) appeal from the trial court’s order denying its motion to compel arbitration. (Code Civ. Proc., §§ 1281.2, 1294.) HMY claims the trial court erred in finding that HMY waived its right to arbitrate its dispute with Brunswick Corporation (Brunswick). We affirm the order.
FACTS
The parties involved in this case are HMY and Brunswick, who does business as Cabo Yachts, Inc. (Cabo). Cabo manufactures boats at a facility in Adelanto. Cabo sells its boats through authorized dealers. HMY was an authorized dealer of Cabo’s boats in three locations: (1) Palm Beach Gardens, Florida; (2) Mount Pleasant, South Carolina; and (3) Dania, Florida. HMY and Cabo’s relationship was formalized via a “Dealership and Service Agreement” (DSA) for each separate location. The DSA’s for Palm Beach Gardens and Mount Pleasant were executed on May 15, 2005, and expired on May 15, 2006. The DSA for Dania was executed on August 17, 2005, and expired on August 17, 2006.
The three DSA’s contained identical provisions concerning venue and arbitration. The provisions provided: “The Agreement has been executed in the State of California and its validity and interpretation shall be governed by the laws of the State of California. Any dispute arising out of, or relating to this Agreement, or the performance contemplated by this Agreement, shall be resolved by binding arbitration to be conducted in the County of San Bernardino, California, and in the City of Victorville, before a single arbitrator under the Commercial Arbitration Rules and procedures of the American Arbitration Association. The parties further agree that in the event of a lawsuit which is not subject to binding arbitration for any reason, venue will lie in San Bernardino County, and the parties waive the right to a trial by jury. In the event of any arbitration or legal action which arises under or pursuant to the terms of this Agreement, whether to interpret or enforce the terms of this Agreement, or otherwise, each party shall be responsible for and shall pay its own costs, expenses and attorneys fees expended by it in such arbitration or action, and shall not be entitled to seek or obtain recovery thereof from the other party. The parties expressly waive any right to an award for punitive or exemplary damages against one another and/or any of its agents, employees, directors, and/or officers.”
Only one DSA is included in the record; however, both parties state that the three DSA’s contained identical provisions.
In February 2006, Cabo was purchased by Brunswick. On April 14 and 26, 2006, Cabo sent letters to HMY explaining that it planned to align all of its DSA’s so that they would all begin August 1. Cabo planned to execute short term DSA’s for any DSA’s that were scheduled to expire prior to July 31, 2006. For example, the DSA’s for Palm Beach Gardens and Mount Pleasant were scheduled to expire on May 15, 2006; therefore, a short term DSA would be executed to cover the period from May 15, 2006, to July 31, 2006. On April 18, 2006, Cabo sent HMY two new DSA’s for Palm Beach Gardens and Mount Pleasant, with effective dates of May 15, 2006, to July 31, 2006. Included with the contracts was a letter from Cabo explaining that the DSA’s were all being aligned to begin August 1 and requesting HMY to review, sign, and return the short-term DSA’s. The new agreements were different than the prior DSA’s between Cabo and HMY because Cabo was now using Brunswick’s form contracts. Cabo did not receive signed and executed copies of the two agreements from HMY.
Without new agreements for the two locations, Cabo and HMY’s relationship was governed by the past DSA’s, which converted to month-to-month agreements, and were terminable by either party with 30 days written notice. On July 17, 2006, Cabo sent HMY three letters. Two letters concerned the Palm Beach and Mount Pleasant DSA’s; Cabo informed HMY that it was giving 30 days’ notice of its intent to terminate the two DSA’s. Accordingly, the two DSA’s would expire on August 17, 2006. In the third letter, concerning the Dania location, Cabo explained to HMY that it would not be renewing the DSA; therefore, the DSA would terminate on August 17, 2006. On August 8, 2006, Cabo received a letter from HMY. In the letter, HMY explained that Cabo breached the DSA’s with HMY by prematurely terminating the DSA’s. The letter demanded that Cabo repurchase its inventory from HMY and pay $9,578,980 for HMY’s lost profits over the next five years.
On August 16, 2006, HMY filed a complaint essentially alleging that Cabo had breached a promise to renew HMY’s DSA’s beginning August 2006. HMY alleged that Cabo’s letter explaining its new plan to align the DSA’s to start August 1 was a promise to renew HMY’s DSA’s. HMY also alleged that Cabo’s vice president of sales orally promised to renew the DSA’s with HMY. HMY’s complaint requested (1) a judicial determination that all three DSA’s had been extended through July 31, 2007; and (2) a permanent injunction preventing Cabo from terminating its three DSA’s with HMY.
Also on August 16, 2006, HMY filed an ex parte application for a preliminary injunction restraining Cabo from terminating HMY’s rights under the three DSA’s. Cabo opposed the application. On September 13, 2006, the trial court held a hearing on the application for a preliminary injunction. At the beginning of the hearing, the court gave a tentative ruling. The court tentatively planned to deny the application because it could not “force this relationship to continue, number one; [and] number two, [the relationship] has already been terminated.” After counsel argued, the court made its tentative ruling final.
On September 20, 2006, Cabo filed an answer to HMY’s complaint. Cabo entered a general denial to HMY’s allegations and listed 10 affirmative defenses. Also on September 20, Cabo filed a cross-complaint against HMY. Cabo alleged that no contract or other business relationship existed between itself and HMY. Cabo requested a judicial determination of its rights and duties with respect to HMY. On November 2, 2006, HMY filed an answer to Cabo’s cross-complaint. HMY entered a general denial and gave eight affirmative defenses, but did not cite the arbitration clause as a defense.
On March 22, 2007, HMY filed a petition to compel arbitration and stay all pending actions in the case pending completion of the arbitration process. In HMY’s points and authorities in support of its petition to compel arbitration, HMY argued that Cabo “renewed the DSAs in 2006 for another year” and then breached the DSA’s by terminating them. Additionally, HMY argued that it did not waive its right to arbitrate the dispute by seeking relief in the trial court. Cabo opposed HMY’s petition.
On April 16, 2007, the trial court held a hearing on HMY’s petition to compel arbitration. Cabo argued that HMY waived its right to compel arbitration by filing the complaint, answering the cross-complaint, and requesting a preliminary injunction at the trial court. Additionally, Cabo asserted that it would suffer prejudice if compelled to arbitrate the matter because it had already revealed its trial strategy to HMY. On June 4, 2007, the court denied HMY’s petition to compel arbitration. The trial court did not provide any reasons or findings to explain its denial.
DISCUSSION
HMY contends the trial court erred by finding that HMY waived its right to arbitrate its dispute with Cabo. We disagree.
“[W]hen a petition to compel arbitration is filed and accompanied by prima facie evidence of a written agreement to arbitrate the controversy, the [trial] court itself must determine whether the agreement exists and, if any defense to its enforcement is raised, whether it is enforceable. Because the existence of the agreement is a statutory prerequisite to granting the petition, the petitioner bears the burden of proving its existence by a preponderance of the evidence. If the party opposing the petition raises a defense to enforcement . . . [such as] a statutory defense of waiver . . . (see [Code Civ. Proc.,] § 1281.2, subds. (a), (b)) [ ] that party bears the burden of producing evidence of, and proving by a preponderance of the evidence, any fact necessary to the defense. [Citation.]” (Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 413.)
“[T]he term ‘waiver’ has a number of meanings in statute and case law. [Citation.] ‘Generally, “waiver” denotes the voluntary relinquishment of a known right. But it can also mean the loss of an opportunity or a right as a result of a party’s failure to perform an act it is required to perform, regardless of the party’s intent to . . . relinquish the right.’ [Citation.] The varied meanings of the term ‘waiver’ are reflected in the case law on the enforcement of arbitration agreements. ‘In the past, California courts have found a waiver of the right to demand arbitration in a variety of contexts, ranging from situations in which the party seeking to compel arbitration has previously taken steps inconsistent with an intent to invoke arbitration [citations] to instances in which the petitioning party has unreasonably delayed in undertaking the procedure. [Citations.] The decisions likewise hold that the “bad faith” or “willful misconduct” of a party may constitute a waiver and thus justify a refusal to compel arbitration. [Citation.] [¶] Although a number of authorities properly caution that a waiver of arbitration is not to be lightly inferred [citation], our [Supreme Court’s] cases establish that no single test delineates the nature of the conduct of a party that will constitute such a waiver.’” (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 982-983 (Engalla); see also St. Agnes Medical Center v. PacfiCare of California (2003) 31 Cal.4th 1187, 1195-1196 (St. Agnes).)
Although there is no single test to determine whether a party has waived its right to arbitration, “‘“a court can consider ‘(1) whether the party’s actions are inconsistent with the right to arbitrate; (2) whether “the litigation machinery has been substantially invoked” and the parties “were well into preparation of a lawsuit” before the party notified the opposing party of an intent to arbitrate; (3) whether a party either requested arbitration enforcement close to the trial date or delayed for a long period before seeking a stay; (4) whether a defendant seeking arbitration filed a counterclaim without asking for a stay of the proceedings; (5) “whether important intervening steps [e.g., taking advantage of judicial discovery procedures not available in arbitration] had taken place”; and (6) whether the delay “affected, misled, or prejudiced” the opposing party.’”’ [Citation.]” (Wagner Construction Co. v. Pacific Mechanical Corp. (2007) 41 Cal.4th 19, 30-31.)
“[T]he question of waiver is one of fact, and an appellate court’s function is to review a trial court’s findings regarding waiver to determine whether the[y] are supported by substantial evidence.” (Engalla, supra, 15 Cal.4th at p. 983.)
HMY contends the standard of review is abuse of discretion. HMY cites Henry v. Alcove Investment, Inc. (1991) 233 Cal.App.3d 94, 101, in support of this contention. Our research reveals the proper standard of review is substantial evidence. (Engalla, supra, 15 Cal.4th at p. 983.)
A. Delay
When HMY filed its complaint, it did not discuss arbitration. When HMY filed its answer to Cabo’s cross-complaint, it did not assert the arbitration clause as an affirmative defense. Additionally, when HMY participated in the hearing for the preliminary injunction, it did not mention the arbitration clause. It was approximately seven months after HMY filed its complaint that it filed the petition to compel arbitration.
B. Conduct Inconsistent with Arbitration
Related to the amount of delay in filing the petition to compel is the factor of inconsistent conduct. During the seven months from the filing of the complaint to the filing of the petition to compel, HMY argued for a preliminary injunction, filed an answer to Cabo’s cross-complaint, accepted Cabo’s discovery requests, and requested an extension to respond to the discovery requests. This conduct was inconsistent with an intent to arbitrate.
C. Prejudice
“[W]hether or not [participating in] litigation results in prejudice . . . is critical in waiver determinations. [Citations.] That is, while ‘“[w]aiver does not occur by mere participation in litigation”’ if there has been no judicial litigation of the merits of arbitrable issues, ‘“‘waiver could occur prior to a judgment on the merits if prejudice could be demonstrated.’”’ [Citation.]” (St. Agnes, supra, 31 Cal.4th at p. 1203.)
The expenditure of court costs and legal fees alone is not enough to compel a finding of prejudice. “Rather, courts assess prejudice with the recognition that California’s arbitration statutes reflect ‘“a strong public policy in favor of arbitration as a speedy and relatively inexpensive means of dispute resolution”’ and are intended ‘“to encourage persons who wish to avoid delays incident to a civil action to obtain an adjustment of their differences by a tribunal of their own choosing.”’ [Citation.] Prejudice typically is found only where the petitioning party’s conduct has substantially undermined this important public policy or substantially impaired the other side’s ability to take advantage of the benefits and efficiencies of arbitration. [¶] For example, courts have found prejudice where the petitioning party used the judicial discovery processes to gain information about the other side’s case that could not have been gained in arbitration [citations]; where a party unduly delayed and waited until the eve of trial to seek arbitration [citation]; or where the lengthy nature of the delays associated with the petitioning party’s attempts to litigate resulted in lost evidence [citation].” (St. Agnes, supra, 31 Cal.4th at p. 1204.)
After HMY filed its complaint, Cabo filed its answer listing 10 affirmative defenses. Following HMY’s application for a temporary injunction, Cabo filed its opposition, which included Cabo’s theory of the case and legal argument concerning why HMY would not prevail on the merits of the suit. In support of its opposition, Cabo also filed declarations of (1) the former president/CEO of Hatteras, a division of Brunswick; (2) the current president of Hatteras; and (3) the vice president of sales for Cabo. Cabo also filed evidentiary objections to two of the declarations filed by HMY. In its evidentiary objections, Cabo argued, in detail, its theories as to why portions of the declarations should be excluded.
The foregoing documents informed HMY of Cabo’s potential trial tactics, which were matters that might not have been disclosed had the case proceeded directly to arbitration. Additionally, Cabo incurred the expense of drafting and filing the various documents, which could have been avoided had HMY timely asserted the right to arbitrate the dispute. Although documents and answers to interrogatories do not appear to have been exchanged via the discovery process, HMY’s delay in pursuing arbitration has caused Cabo to lose “whatever efficiencies that would otherwise have been available to it through arbitration. Simply put, ‘“[t]he courtroom may not be used as a convenient vestibule to the arbitration hall so as to allow a party to create his own unique structure combining litigation and arbitration.”’ [Citations.]” (Guess?, Inc. v. Superior Court (2000) 79 Cal.App.4th 553, 558.)
In sum, substantial evidence supports a finding that Cabo has suffered prejudice because (1) Cabo has disclosed its potential trial strategy to HMY, and (2) Cabo has lost two of the greatest benefits of arbitration—speedily and inexpensively reaching a resolution to the dispute. Accordingly, we conclude substantial evidence supports the trial court’s denial of HMY’s petition to compel arbitration.
D. Writers Guild
Our conclusion is buttressed by the case of Writers Guild of America, West, Inc. v. Screen Gems, Inc. (1969) 274 Cal.App.2d 367 (Writers Guild). In Writers Guild, the plaintiff (television writers and their labor union) sued defendant (television producers), asking the trial court to interpret contractual provisions, and requesting preliminary and permanent injunctions restraining the producers from exercising rights arising from the disputed contractual provisions. (Id. at p. 369.) The trial court denied the request for a preliminary injunction. (Ibid.) The plaintiffs then petitioned to compel arbitration. (Id. at p. 370.) The trial court denied the petition. (Ibid.)
The reviewing court affirmed the trial court’s order because it found the plaintiff waived its right to arbitrate by seeking a preliminary injunction. (Writers Guild, supra, 274 Cal.App.2d at pp. 373-375.) The reviewing court concluded that the request for a preliminary injunction “amounted in effect to a request for an immediate interpretation by the superior court of the disputed terms in the [contract].” (Id. at p. 373.) In support of this conclusion, the trial court went on to discuss how the plaintiff’s actions essentially caused the defendant to suffer prejudice by causing the defendant to lose the benefits of arbitration. (Id. at p. 375.) The Writers Guild court noted that it would be “‘a fundamentally unfair procedure’” to allow a party to proceed with litigation until it receives an adverse ruling on a motion “‘and then allow it to resort, against the wishes of the adversary, to arbitration, where a better result is hoped for, [because such a procedure] would cause an unnecessary waste of time and effort . . . .’” (Ibid.)
The instant case raises factually similar issues. HMY sought to enforce the arbitration clause only after various documents had been filed in the case and HMY received an unfavorable ruling on its request for a preliminary injunction. Accordingly, we find the reasoning of Writers Guild to be particularly applicable to the instant case.
HMY contends that the reasoning of Writers Guild is not applicable to the instant case because “unlike in Writers Guild, HMY had no choice but to seek an immediate temporary restraining order from the court because the termination date of August 17, 2006 stated in Brunswick’s letter . . . was imminent.” HMY argues it had to seek the preliminary injunction in the trial court because such immediate relief is not available through arbitration.
HMY’s assertion that it “had no choice” but to seek temporary relief from the trial court may be true; however, it does not explain HMY’s delay in seeking arbitration. If HMY were truly seeking relief in the trial court for the limited purpose of obtaining a preliminary injunction, then it would have asserted the arbitration clause as an affirmative defense in its answer to Cabo’s cross-complaint, which it did not do, or HMY would have filed for a stay of all proceedings pending arbitration at the same time it applied for the preliminary injunction (Code Civ. Proc., § 1281.8, subd. (d)), which it also did not do. Consequently, it appears from the record that HMY planned to litigate the matter until it received an unfavorable ruling on its request for a preliminary injunction, similar to the plaintiff in Writers Guild.
DISPOSITION
The order is affirmed. Respondents are awarded their costs on appeal.
We concur: GAUT, J., KING, J.